CFPB: Banks, Nonbanks Liable for Third-Party Violations

The ""Consumer Financial Protection Bureau"":http://www.consumerfinance.gov/ (CFPB) issued a bulletin Friday reminding financial institutions that they may be held accountable for violations under contracted service providers.

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The agency said that banks and nonbank entities need to supervise their third-party vendors with due diligence, consistently request and review their internal controls and training materials, and establish clear expectations about compliance.

The CFPB also called on financial institutions to adopt the internal controls necessary to supervise vendors, reaffirming the agency’s role as both a formal supervisor and informal trendsetter in the industry.

“Consumers are at a real disadvantage because they do not get to choose the service providers they deal with â€" the financial institution does,” CFPB Director Richard Cordray said in a statement. “Consumers must not be hurt by unfair, deceptive, or abusive practices of service providers. Banks and nonbanks must manage these relationships carefully and can be held accountable if they break the law.”

The bulletin marks only the latest signal by the CFPB that it plans to move on areas within its jurisdiction under the Dodd-Frank Act.

The bureau more recently released a statement saying that it plans to propose national standards for servicers this summer.